Tangent Furniture Ltd v  Revenue and Customs [2006] UKVAT V19493 (09 March 2006)

19493

VAT - SECURITY– Protection of Revenue – Appellant having the same business from the same premises as a previous company which went into administration owing VAT – the Appellant and previous company had the same director – the Appellant poor record of VAT – the Appellant subsequent to the issue of the security had been bought out – whether Respondents’ actions in requiring a security reasonable –Yes – Appeal dismissed – VAT ACT 1994 Schedule 11 p 4(1).

LONDON TRIBUNAL CENTRE

TANGENT FURNITURE LIMITED	Appellant

- and -

HER MAJESTY’S REVENUE and CUSTOMS	Respondents

Tribunal:	MICHAEL TILDESLEY  OBE (Chairman)
NORAH CLARKE                       (Member)

Sitting in public in Bristol on 15 February 2006

Simon Sarsfield, Director of the Appellant company, for the Appellant

Pauline  Crinnion Advocate  for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2006
DECISION
The Appeal

1.	The Appellant was appealing against a Notice of Requirement to give Security in the sum of £33,100 (quarterly returns) or £22,050 (monthly returns) issued on 23 June 2005.
2.	The ground of Appeal was that
“The imposition of the security deposit will force the business to cease resulting in all staff being made redundant”.
The Issue to be Decided
3.	The Appellant was in the business of manufacturing and selling office furniture. The Respondents contended that it posed a risk to the protection of the revenue because it was a phoenix of a previous company, Tangent Solutions, which went into administration on 5 August 2004 with a debt of £66,380.93. Since its incorporation the Appellant had a poor record of VAT compliance. Mr Sarsfield on behalf of the Appellant accepted that the Respondents were correct in asking for a security but the Appellant company had now been sold and the security was no longer appropriate.
4.	The issue for the Tribunal was whether the Respondents had acted reasonably in imposing the security for the protection of the revenue. Thus we have to decide whether the Respondents acted in a way in which no reasonable panel of Commissioners for HM Revenue and Customs could have acted, or whether they had taken into account some irrelevant matter, or disregarded something to which they should have given weight when imposing the security requirements. In exercising this jurisdiction we must limit ourselves to considering facts and matters which existed at the time the challenged decision to require a security was taken.
The Legislation
5.	Paragraph 4(2), Schedule 11, of the Value Added Tax Act 1994 provides that

“If they think it is necessary for the protection of the revenue, the Commissioners may require a taxable person, as a condition of his supplying or being supplied with goods or services under a taxable supply, to give security, or further security, for the payment of any VAT that is or may become due from –

a) the taxable person, or
b) any person by whom or to whom relevant goods or services are supplied.”
The Evidence
6.	We heard evidence from Mr Sarsfield, the managing director of the Appellant company and Sue Ogburn, the Officer responsible for issue of the Notice of the Requirement to give the Security.
7.	The Tribunal received a bundle of documents prepared by the Respondents.
The Facts
8.	The Appellant was incorporated on 26 July 2004 and registered for VAT on 12 August 2004.  It carried on business as a manufacturer of office furniture from premises at Unit 4, Rivermead Drive, Rivermead Industrial Estate, Swindon, Wiltshire.
9.	The Appellant purchased the assets, staff and goodwill of Tangent Solutions Limited which had gone into administration on 5 August 2004 with a debt of £66,380.93 and ceased trading on 19 April 2005. Tangent Solutions Limited had been assessed twice for VAT in respect of under declaration of sales and on occasions subject to the default surcharge scheme. Tangent Solutions Limited was in the same business and traded from the same premises as the Appellant. Mr Sarsfield was a director of Tangent Solutions Limited and of the Appellant.
10.	Mr Sarsfield had also been a director of two other companies, Remarq Limited and Exy Group Limited which owed debts respectively of £92 and £9,914 to the Respondents.
11.	 At the time of the issue of the Notice of Security the Appellant had only submitted one VAT return out of the three returns due and owed unpaid VAT in the sum of £15,025 which related to a centrally issued assessment. Mr Jones, the Appellant’s Financial Controller advised the Respondents in a letter dated 9 June 2005 that the Appellant was not in a position to settle the VAT debt in one payment and that it would be seeking an arrangement to pay the debt. 
12.	The amount of security demanded was calculated on the basis of the actual VAT declarations of Tangent Solutions Limited which was less than the estimated annual sales of £2 million in the Appellant’s Application for VAT Registration.
13.	Mr Sarsfield  in evidence stated that he was unaware of the VAT debt for Remarq Limited and  disputed the debt for Exy Group Limited which he considered to have an impeccable VAT compliance record with no outstanding debt for VAT. He accepted that Tangent Solutions had gone into administration owing VAT to the Respondents and that it did not have a good VAT compliance record.
14.	Mr Sarsfield explained that the Appellant suffered financial difficulties despite having a factoring arrangement which allowed the Appellant to draw down 80 per cent of its sales monies declared on the issued invoices. The Appellant’s suppliers  refused to make supplies unless they were paid the debts due to them from Tangent Solutions Limited. Essentially the Appellant had insufficient income to pay its overheads and supplies and gave priority to those commitments rather than VAT. 
15.	Mr Sarsfield agreed that he had the primary responsibility for ensuring that the Appellant met its legal requirements in respect of VAT. However, he was under the impression that Mr Jones, the Financial Controller, had resolved the VAT problem and had brought the returns up to date. Mr Sarsfield now accepted that this was not the case and the Appellant had failed to meet its VAT obligations. Mr Sarsfield considered that decision by Mrs Ogburn to issue the Notice of Security was correct.
16.	Mr Sarsfield submitted that the security was no longer appropriate because the Appellant had been bought on 1 November 2005 as a going concern by JF Knott Limited on an earn out basis. However, the company and VAT registration for the Appellant was still in existence, albeit under a different name of Ocean Wood Limited. Mr Sarsfield was employed by JF Knott Limited. Mr Sarsfield was of the view that the Appellant was no longer trading and making taxable supplies. The office furniture was being sold by JF Knott Limited. Mr Sarsfield had taken this course of action to avoid the Appellant from being put into administration. He anticipated that the Appellant would be able to meet all its debts from the income received on the earn out. 
Reasons for Our Decision
17.	Our starting point is to consider whether Mrs Ogburn acted in a way in which no reasonable panel of Commissioners for HM Revenue and Customs could have acted, or whether she took into account some irrelevant matter, or disregarded something to which she should have given weight when imposing the security requirement for the protection of the revenue on the Appellant on the 23 June 2005. In exercising our jurisdiction we must limit ourselves to considering facts and matters which existed at the time the challenged decision to require a security was taken. We are unable to substitute our own discretion for that of the Commissioners. Our task is to decide whether the decision of Mrs Ogburn was reasonable.
18.	Mrs Ogburn decision was based upon the clear link between Tangent Solutions Lmited and the Appellant in that they were engaged in the same business from the same premises and sharing Mr Sarsfield as a director. The VAT compliance record of Tangent Solutions Limited was poor with the company going into administration owing VAT in the sum of £66,380.93. Mrs Ogburn considered that the Appellant was effectively the phoenix of Tangent Solutions Limited. There was a real risk that the Appellant would follow the same pattern of not complying with its VAT obligations. The existence of that risk was confirmed when the Appellant failed to pay the centrally raised assessment and did not submit two out of the three returns due. We consider that Mrs Ogburn was correct in giving weight to these facts when imposing the security. In our view they were relevant in assessing the Appellant’s risk to the protection of the revenue. 
19.	 Mrs Ogburn stated that she did not place weight on the involvement of Mr Sarsfield in Remarq Limited and Exy Group Limited when considering the issue of the Notice of Security. She considered that the amount owed by Remarq Limited was insignificant and that there was no definite link between the Appellant and Exy Group Limited.  We accept the evidence of Mr Sarsfield that he did not know about the debt of Remarq Limited and that Exy Group Limited had an impeccable VAT record. We are satisfied that Mrs Ogburn did not rely on Mr Sarsfield’s involvement with these two companies when requiring the security.
20.	The sale of the Appellant company to JF Knott Limited on an earn out basis took place on 1 November 2005, some four months after the issue of the Notice of Security.  In deciding this Appeal we are not entitled to take into account facts that occurred after the issue of the Notice of Security. We have to judge the reasonableness of Mrs Ogburn’s decision on the facts and circumstances known at the time she took the decision.
21.	We consider that the amount of security requested was reasonable as it was based on the actual trading figures for Tangent Solutions Limited which produced a lower figure than that calculated from the estimated annual turnover declared by the Appellant in its Application for VAT Registration.  
22.	We, therefore, find no evidence that Mrs Ogburn took into account some irrelevant matter or disregarded something to which she should have given weight in coming to her decision on the 23 June 2005.
Decision
23.	For the reasons set out above we hold that the issue of the Notice of Security dated 23 June 2005 on the Appellant was reasonable. 
24.	We, therefore, dismiss the Appeal. We make no order for costs.
25.	We request that the Respondents examine whether the security is still appropriate in the light of the changed circumstances arising from the buy out of the Appellant by JF Knott Limited  which occurred after the issue of the Notice of Security. We urge Mr Sarsfied to co-operate with the Respondents’ enquiries about this matter if they decide to make them.  

MICHAEL TILDESLEY OBE

CHAIRMAN
RELEASE DATE: 9 March 2006

LON/05/785